Correlation Between Fidelity Contrafund and Stone Toro

Can any of the company-specific risk be diversified away by investing in both Fidelity Contrafund and Stone Toro at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Fidelity Contrafund and Stone Toro into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Fidelity Contrafund K6 and Stone Toro Market, you can compare the effects of market volatilities on Fidelity Contrafund and Stone Toro and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Fidelity Contrafund with a short position of Stone Toro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fidelity Contrafund and Stone Toro.

Diversification Opportunities for Fidelity Contrafund and Stone Toro

0.28

Correlation Coefficient

Fidelity Contrafund  Stone Toro

Modest diversification

The 3 months correlation between Fidelity and Stone is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Fidelity Contrafund K6 and Stone Toro Market in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stone Toro Market and Fidelity Contrafund is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Fidelity Contrafund K6 are associated (or correlated) with Stone Toro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stone Toro Market has no effect on the direction of Fidelity Contrafund i.e., Fidelity Contrafund and Stone Toro go up and down completely randomly.

Pair Corralation between Fidelity Contrafund and Stone Toro

Assuming the 90 days horizon Fidelity Contrafund K6 is expected to under-perform the Stone Toro. In addition to that, Fidelity Contrafund is 5.54 times more volatile than Stone Toro Market. It trades about -0.06 of its total potential returns per unit of risk. Stone Toro Market is currently generating about -0.1 per unit of volatility. If you would invest  2,533  in Stone Toro Market on December 30, 2024 and sell it today you would lose (36.00) from holding Stone Toro Market or give up 1.42% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Fidelity Contrafund K6  vs.  Stone Toro Market

Fidelity Contrafund

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fidelity Contrafund K6 has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Fidelity Contrafund is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Stone Toro Market

Risk-Adjusted Performance

Very Weak

Over the last 90 days Stone Toro Market has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Stone Toro is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Fidelity Contrafund and Stone Toro

The main advantage of trading using opposite Fidelity Contrafund and Stone Toro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Fidelity Contrafund position performs unexpectedly, Stone Toro can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Stone Toro will offset losses from the drop in Stone Toro's long position.

The idea behind Fidelity Contrafund K6 and Stone Toro Market pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.